From his office on the 29th floor of a glass-fronted Madison Avenue tower, the hedge fund manager John Paulson can look a few blocks down the street to the beleaguered headquarters of the doomed bank Bear Stearns. His luck could barely be more different.

A sharp-suited New Yorker with a taste for luxurious homes and a penchant for quoting Winston Churchill, Paulson has emerged as the world's biggest winner from the global credit crunch. He enjoyed a personal pay package of $3.7bn (£1.9bn) last year by "shorting" the US mortgage market.

His bet that millions would lose their homes has sparked comparisons with George Soros, who made $1bn in 1992 by driving down the pound on Black Wednesday. Paulson's staggering success in outsmarting the rest of Wall Street has sparked envy, scepticism and demands that he give back his money to mortgage victims.

Aged 52, and the father of two young daughters, he was brought up in the rough borough of Queens in New York. His Paulson & Co firm employs 60 people and its success has centred on a venture called the Credit Opportunities Fund, with a return of 590% last year in the league table compiled by the trade magazine Alpha.

Working on a hunch held by Paulson since early 2006, the fund took positions in esoteric Wall Street mortgage-related instruments such as credit default swaps and collateralised debt obligations, with a view to cashing in once the mortgage bubble burst. He is unapologetic about his success.

"I've never been involved in a trade that had such unlimited upside with a very limited downside," he told the Wall Street Journal; mortgage experts had been "too caught up" in an unsustainable boom. He is hardly a flash in the pan. He set up his firm in 1994, and has long been respected on Wall Street as an "event-driven" investor making money through arbitrage on mergers and acquisitions. His firm manages $32bn of clients' money. He has had his share of misses as well as hits - he told one interviewer that his favourite Churchill quote was: "Never give in, never give in, never give in."

Peter Morici, professor of finance at the University of Maryland, says: "Hedge funds have an agility and mobility that bricks and mortar institutions just don't have."

Furthermore, hedge funds are structured to exploit a loophole allowing their managers to avoid capital gains tax on their cut of profits.

Morici believes Paulson was not unique in suspecting the mortgage industry was heading for trouble - but was by far the most effective at putting his money where his mouth was: "He saw what many of us suspected, but didn't have the courage of our convictions to put our money on."

Not everybody is impressed. A Congressional committee has predicted that two million low-income Americans will lose their homes to foreclosure as they struggle with predatory mortgages. A leading advocacy group told the Guardian that Paulson's earnings from the crisis were "obscene". "I don't think a system where you can profit from people losing their homes is a good way to make money," said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America.

In a nod to sub-prime victims, Paulson & Co has donated $15m to the Center for Responsible Lending to finance legal assistance for people fighting repossession. But critics see this as woefully inadequate in the context of its vast profits. "That doesn't even show up on [Paulson's] radar screen - it's the equivalent, for a hard-working person, of giving a penny," says Marks. "He should do what Bill Gates has done, that should be the model; he should give back the money to those who need it."

As yet, Paulson has not revealed any plan for personal philanthropy. He keeps a low profile in spite of feverish media hype - reporters tracked down his 81-year-old mother, Jacqueline, who told the New York Daily News from her home in New England: "My son John is an important person, but I really don't have anything to say about it."

His friends brush aside criticism. One associate said: "If John didn't exist, some person in Arizona would still be being kicked out of their home today." Nevertheless, the contrast with his own accommodation is striking. He lives in a 2,600 sq metre (28,000 sq ft), five-storey townhouse on New York's Upper East Side built in 1916 for the notorious banker and society horse breeder William Woodward - who was murdered by his wife, as told in Truman Capote's book Answered Prayers.

As do many of New York's elite, Paulson retreats to the Hamptons for summer weekends, where he has reportedly just paid $41.3m for a 4 hectare lakefront estate with ocean views to replace a seven-bedroom "cottage" now on for sale for $19.5m.

Is Paulson a strategic genius, or did he merely place a spectacularly successful bet? Gary Burtless, an economics expert at the Brookings Institution in Washington, says there is an inevitable Las Vegas element in hedge fund investing: "It's very difficult to distinguish genuine skill in investment from pure good luck."

Americans are used to phone-number pay on Wall Street and even among Democrats there is minimal impetus to address "excess". Hedge funds donate to presidential candidates and Congress's economic committee is chaired by the New York senator Charles Schumer - a fierce defender of his city's wealth creation. "We tax them very lightly," replies Burtless. "A washing machine salesman pays a heavier rate than a hedge fund financier."

How to spend it

With a salary of $3.7bn, John Paulson has plenty of money. Besides reportedly paying $41m for a retreat in the Hamptons, he could have:

At today's commodity prices, 92 tonnes of gold or 3.7m tonnes of rice

... or 19 private islands such as Rangyai, off Phuket in Thailand, on sale for $160m